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Can Viacom and Disney Deal a Painful Blow to Netflix?

NEW YORK (
TheStreet) -- Last week, Bernstein Research analyst Todd Juenger
speculated
that
Disney(DIS - Get Report) and
Viacom(VIA.B) will pull the kids' programming they license to
Netflix(NFLX - Get Report) from the video streaming service. In a nutshell, Juenger chalks up ratings declines on kids' television shows to Netflix's impact.

In this article, I assess Juenger's contention. Then I consider whether or not his scenario has any chance of unfolding. I close by discussing the larger ramifications for Netflix and the overall media space.

The Netflix Value Meal

When you stop and think about it, it's as unhealthy as
McDonald's(MCD) used to be and still can be. You pay Netflix $8 a month and plop your kid down in front of the computer so he or she can consume hours upon hours of iCarly and SpongeBob reruns. This approach to child rearing can bring on the munchies, pack on the pounds and save some families cash if they cut all or part of the cable cord. How many kids really know or care if they're watching the latest episode of SpongeBob or the reruns Viacom sells to Netflix?

If we believe Juenger's hypothesis, adults do know the difference. He contends that offering reruns of shows like
Mad Men to Netflix has actually kept streamers in contact with cable because they seek out new episodes on AMC after watching old ones on Netflix. Obviously, the dynamic could have a lot to do with age as it relates to behavior; it's a double-edged sword. It might make sense to license an original program, serialized programming or old episodes of
The Office, but not seemingly evergreen cartoons and kids' shows.

Does Netflix Have Any Control?

Because we do not know the ins and outs of the content deals Netflix signs we cannot come up with a definitive answer to this question. We can, however, cull from history to inform an educated guess.

Last year, Starz
announced
it would not renew its contract to stream movies via Netflix. This move came shortly after
Sony(SNE) pulled its movies, which were part of the Starz deal, from the service in what Netflix
discounted
as a "temporary contract issue." Clearly, it ended up being more than a fleeting dispute. Starz appears to have told the real story in the above-referenced September 2011 press release:

This decision is a result of our strategy to protect the premium nature of our brand by preserving the appropriate pricing and packaging of our exclusive and highly valuable content. With our current studio rights and growing original programming presence, the network is in an excellent position to evaluate new opportunities and expand its overall business.